PUERTO RICO Law and Practice Contributed by: Fernando J. Rovira-Rullán and Andrés I. Ferriol Alonso, Ferraiuoli LLC
approval of the target’s governing body, the parent’s equity holders or the target’s minority owners. In an asset purchase transaction, the purchaser gen - erally acquires all or substantially all of the target’s assets and, in some cases, it may also assume certain liabilities of the target company as part of the consid - eration. This transaction structure allows the parties to pick and choose the particular assets (and corre - sponding liabilities) that will be acquired (or assumed) by the purchaser. In the event that the target is selling all or substantially all of its assets, as a general rule both the governing body and the majority stakehold - ers of the target entity must approve the transac - tion. As for the purchaser in an asset transaction, it is advisable, to limit the risks that may be associated with the acquired assets and liabilities, for the pur - chaser to organise a subsidiary to acquire the assets and assume any liabilities being transferred. As to mergers and consolidations, the transaction will depend on the type of merger or consolidation agree - ment or reorganisation plan. In a triangular merger, the target is merged into a new entity (organised solely for the purposes of the underlying transaction) resulting in the survival of the new entity as a subsidiary of the purchaser. Nevertheless, under certain circumstances the target could be the surviving entity. The alternative structure is often referred to as a “reverse triangular merger” and it is commonly used when the target has contracts, permits, licences or tax attributes that can - not be transferred to a third party. One of the core aspects in an M&A practice is iden - tifying how to structure a transaction in the way that is most beneficial for the parties involved. The final structure of a transaction will depend on multiple fac - tors that will include business, financial, legal, regula - Puerto Rico, as an unincorporated territory of the USA, enjoys US constitutional, legal, financial and regula - tory protection. Thus, almost all US federal laws and regulations, including federal securities laws, apply to Puerto Rico. This also means that federal regulatory trends – such as enhanced scrutiny of foreign invest - tory and tax considerations. 2.2 Primary Regulators
ment and data‑sensitive industries – also affect Puerto Rico‑based transactions. The Puerto Rico General Corporations Act of 2009, as amended (the “General Corporations Act”), provides the substantive corporate law. It is the principal and most comprehensive statute in connection with the constitution, governance and dissolution of corporate entities and limited liability companies in Puerto Rico. The General Corporations Act is modelled on the Del - aware General Corporations Act, and the Puerto Rico Supreme Court has determined that the decisions of Delaware courts in connection with the interpretation of the Delaware General Corporations Act are to be followed in Puerto Rico courts. Corporations, limited liability companies and partner - ships, among other types of entities, are incorporated, organised or authorised to do business in Puerto Rico by the Department of State of Puerto Rico. The Regis - try of Corporations and Entities of the Department of State of Puerto Rico offers a range of online services including a searchable data base of registered legal entities, the organisation or incorporation of new legal entities, certificates of good standing, certificates of existence, amendments to the public information con - tained in the registry, the dissolution of legal entities, the submission of annual reports, the payment of fees and requests for extensions, among other transac - tions. When an M&A transaction involves financial institu - tions, the Commissioner of Financial Institutions of Puerto Rico has to evaluate and approve the pur - chase, merger or consolidation. If the transaction involves banks, the appropriate federal regulators will also have to evaluate and approve such transaction. Similarly, the Puerto Rico Insurance Commissioner must evaluate and approve the merger or consoli - dation of insurance companies organised under the Puerto Rico Insurance Code. The Puerto Rico Insur - ance Code further provides that insurance companies may only merge or consolidate with other insurance companies of the same classification. If a party to an M&A transaction holds a tax incen - tive grant, certain notices or consents must also be
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